forbes.com
US Economic Growth Before the Federal Reserve
This analysis compares the annual average growth rates of the US economy during periods without a central bank (1836-61, 1865-1913, 1811-12) to a recent period (2000-24) with the Federal Reserve, revealing significantly higher growth in the pre-Fed eras.
- How did the pre-Federal Reserve banking system function, and what mechanisms ensured its stability and responsible operation?
- Banks operated as private businesses, providing deposit services, currency, and loans. Stability was maintained through private regulatory mechanisms like the Bank of Stephen Girard and the Suffolk Bank system, which monitored member banks' practices and ensured solvency. Private bank-issued paper dollars were redeemable in precious metals.
- What are the implications of these findings for the current economic system, and what alternatives are suggested by this historical analysis?
- The significantly higher growth rates during eras without a central bank suggest that the current system may not be optimal. The author proposes a return to private, self-regulating banking with organically developed supervisory institutions as a model for future economic growth.
- What were the average annual growth rates of the US economy during the periods 1836-61, 1865-1913, and 1811-12, and how do these compare to the growth rate from 2000-2024?
- The annual average growth rates were 4.28 percent (1836-61), 3.71 percent (1865-1913), and 3.99 percent (1811-12). The average annual growth rate from 2000-2024 was 2.12 percent, approximately half the rate of the pre-Federal Reserve periods.
Cognitive Concepts
Framing Bias
The article presents a strong framing bias by selectively focusing on periods of high economic growth in the US when there was no central bank, while omitting periods of economic instability or crises. The headline and introduction strongly suggest a causal link between the absence of a central bank and economic prosperity, presenting this as a simple, direct correlation without acknowledging the complexities of economic history. The use of phrases such as "golden era," "epic," and "wonderful" reinforces this positive framing.
Language Bias
The author uses emotionally charged language, such as "golden era," "epic," "wonderful," and "glorious," to describe periods without a central bank. These terms are not objective and promote a positive view of the past. Conversely, the author uses negative terms like "discount," "cranky," and "uncritical" to describe periods with a central bank. Neutral alternatives would include more descriptive and less value-laden phrases. For example, instead of "golden era," a more neutral description could be "period of significant economic expansion.
Bias by Omission
The analysis omits significant historical context. It fails to mention economic downturns, recessions, or financial panics that occurred during the periods presented as "golden eras." The author selectively uses economic data to support a pre-conceived notion, ignoring counter-evidence. The argument also omits discussion of the role of other factors, such as technological innovation, population growth, and global trade, that might have contributed to economic growth during these periods.
False Dichotomy
The article presents a false dichotomy by suggesting that either a central bank or no central bank is the sole determinant of economic success. This oversimplifies economic realities and ignores the complex interplay of various factors influencing economic growth. The author implies that the only two options are a stellar economy with no central bank or a poor economy with a central bank. This neglects the possibility of various economic outcomes under different regulatory environments.
Sustainable Development Goals
The article highlights periods of significant economic growth in the US (1836-61, 1865-1913, 1811-1812) characterized by the absence of a central bank. This growth is presented as evidence that a decentralized banking system fostered economic prosperity, job creation, and improved living standards. The author argues that this historical precedent suggests a reevaluation of the role and benefits of central banks. The positive economic impact during these periods directly relates to SDG 8, which aims for sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all.